Chicken and egg dilemma in farm loan disbursement

Assam surpassing the benchmark Credit Deposit (CD) ratio is reflective of banks providing more than 60% of total deposits as loans to individuals or entities in the state. The success story is not uniform for all the districts and banks; ten districts are yet to achieve the benchmark CD ratio. The increase in CD ratio is primarily due to increased lending to the Micro, Small, and Medium Enterprise (MSME) sector, which is indicative of significant improvement in the financial ecosystem for entrepreneurial growth. Poor access to bank credit posed a stumbling block in entrepreneurial growth in the state, and many entrepreneurial ventures became unsustainable. Growth in the MSME sector is crucial to generate employment and livelihood opportunities and reduce long queues of job seekers in government departments. Lakhs of unemployed youth applying against a few thousand government posts tell the other part of the CD ratio story in the state. Credit disbursement in the agricultural sector has not grown like the MSME sector. This implies that the majority of farmers still do not have easy access to bank loans for expansion of their agricultural activities. Such activities include boosting production, transporting produce to markets beyond the village boundaries where they get higher and more lucrative prices, purchasing high yielding varieties of fertiliser, purchasing or taking on rent tractors, threshers, and other farm equipment, and the list goes on. They also need loans for funding educational expenses of their children, meeting health expenditures, and purchasing household consumer goods, among others, in between harvesting seasons when they do not have cash in hand or deposits deplete due to withdrawal to meet input costs. If the farmers are unable to produce more or get remunerative prices for their produce, they will not be able to return the loan amount taken for household consumption. The small and marginal farmers take loans at high interest rates from informal credit markets due to poor access to bank loans and end up falling into a debttrap unable to pay the monthly instalments attracting penalty on defaults. Crop failure due to flood and hailstorm worsens the financial woes of the marginal farmers in the state. The Kisan Credit Card (KCC) is a unique scheme to facilitate farmers seeking adequate bank loans to meet their agricultural needs as well as household consumption. Yet, low KCC enrolment of just 26% of the farmers reveals reluctance on the part of the banks to provide loans to small and marginal farmers and benefits of a farmer-friendly scheme not being fully harnessed. Banks have achieved only 58% of their annual targets of advancing loans in the agricultural sector, while the achievement in the MSME sector is to the tune of 171% of the annual targets for the financial year 2023-24. Official data shows that while there are 8.16 lakh active KCC accounts in the state, only 30,830 applications were insured under Kharif Season and 26,712 applications are insured under Rabi Season in 2023-24. Non-availability of land records is cited as another reason behind reluctance on the part of the banks to support agricultural finances at the desired level. This problem is expected to be addressed when the state achieves 100% digitisation of land records. The central government articulated some key schemes aimed at increasing farmers’ income in Assam and other Northeastern statesso that they start growing crop at commercial scale and end dependence on traditional subsistence agricultural practice. These schemes include Horticulture Mission for Northeast & Himalayan States, Mission Organic Value Chain Development for Northeastern Region, Pradhan Mantri Krishi Sinchayee Yojana-Per Drop More Crop. Farmers need easy access to bank credits to play the role of beneficiaries of these schemes to transition to cultivation at the commercial scale and producing high-value crops that fetch higher and remunerative prices. Once their income increases from farming, it will also attract young members of the farm families to explore huge income opportunities from their farm fields and as entrepreneurs in the agricultural sectors. Food processing units such as mustard oil expeller units, fruit processing units for making jam, jellies, and packaging units will be sustainable only when supplies of raw food items from farm fields are steady and easily procurable. This can be possible only if farmers are able to get easy access to bank loans and other benefits of the schemes to diversify their agricultural production on a commercial scale. Assam being an agrarian state, faster economic progress can be possible only by uplifting the farm households and augmenting their household income. The majority of farmers being small and marginal, the required investment in the agricultural sector must come from banks and other financial institutions in the form of easy loans. Banks overcoming the chicken and egg dilemma while deciding loan applications of small and marginal farmers for boosting their farm production and productivity will ensure the sustainability of the CD ratio success story in Assam.